Bill Ackman wants the world to have a better understanding of why people act the way they do.» Read More
Rising Tide of Anger at Germany over Bailout Obstructionism (Financial Times) No surprises in the first graf here: Everyone seems to agree on two things: 1) The Germans want bondholders to experience some pain; and 2) the official German explanation for why involves the language of 'systemic' concerns about sustainability: "German officials insist their campaign to get private bondholders to shoulder more bail-out costs is not just about domestic considerations. The government is more concerned that the current system—which condemns well-managed states to bailing out badly managed ones—is unsustainable." Straight forward enough. But graf two is very interesting: "But even some of those well-managed states have expressed anger at German tactics. Countries such as the Netherlands, Finland and Austria, all normally allies of Germany in economic governance issues, have raised questions about Berlin’s behaviour." How inscrutable indeed are those backroom discussions in Farnkfurt!
Two short words can evoke terror in the heart of any true Keynesian: Liquidity Trap.
I recently spoke with Dr. Robert Shapiro about the overall state of the economy —and the dreaded liquidity trap scenario. Dr. Shapiro was Under Secretary of Commerce for Economic Affairs during the Clinton administration, and the principal architect of President Clinton's 1992 economic program.
The formulas representing the liquidity trap concept are both dizzying and varied — but Dr. Shapiro breaks the idea down into a highly digestible form :
"You know you're in a liquidity trap when—no matter how low the interest rates are—lending doesn't occur. Or very little lending occurs."
That's really the crux of a very complex concept: When you're stuck in a liquidity trap, banks don't want to lend and businesses and consumers don't want to borrow.
So how does the liquidity trap scenario occur?
Sources on both sides of the 50-state attorney's general investigation into so-called "robo-signing" foreclosure practices tell me they are nearing a settlement. As Bank of America , JP Morgan Chase and Iowa Attorney General Tom Miller square off today before the Senate Banking Committee, the framework of a deal is taking shape.
There’s something new going on in Washington, DC.
Under the usual rules of the politics of money, high unemployment results in criticism of the Federal Reserve from the left. The Fed is usually accused of having a monetary policy of being too tight when unemployment creates political waves.
The critics have traditionally been Democrats—such as banking committee chairs Wright Patman in the late 1960s or Henry Gonzalez in the early 1990s.
But monetary policy beyond the zero-boundary at a time of high unemployment has sparked off a tidal wave of criticism coming mainly from the right. On Monday we had the open letter to Ben Bernanke from a mostly conservative and Republican affiliated group calling for the Fed to stop its latest quantitative easing program.
On Wednesday, Senate Majority Leader Harry Reid is expected to put the Pickens Plan for energy independence up before the Senate.
The bill would create a 10 year plan to fund solar, wind and natural gas initatives. Also included in the plan are tax credits which are designed to speed up the adoption of vehicles running on natural gas. Reid's plan is slightly different than T. Boone Pickens' original proposal, which emphasized wind power (an area in which Pickens hads a substantial financial stake). Pickens later changed his plan—and his investment strategy—to include a broader array of alternative energy plays, including a larger role for natural gas.
Many on Wall Street and on the Hill doubt Reid's bill will pass because the relatively low price of oil has sapped the political drive for alternative energy. In fact, one of my energy contacts told me he is telling his clients his Pickens Plan "power play" is to buy more oil companies!
I decided to sit down with two people to get their perspectives on the plan. Gregory Boyce, Chairman and CEO of Peabody Energy, the world's largest private sector coal company, and Richard Soultanian, Co-President of the utility cost management firm, NUS Consulting.
Investor exuberance as evidenced in a recent survey of fund managers may have foretold the current market selloff.
Portfolios have been reduced to a “dangerously low” 3.5 percent in cash, according to November’s Bank of America Merrill Lynch Fund Manager Survey. That coincides with 41 percent of managers saying they are overweight equities, compared to 27 percent in October.
The BofA Merrill results are in line with other sentiment surveys.
The American Association of Individual Investors reports 58 percent of investors as bullish, well ahead of the norm of 39 percent. The Investors Intelligence poll, which surveys newsletter editors, was a less frothy though still enthusiastic 48 percent bullish.
Despite legal troubles the electronic mortgage database known as MERS has encountered recently, there is no legislation rescue coming soon, according to sources on Capitol Hill.
Not only is there no legislation being drafted on Capitol Hill, there is no chance that any such legislation will come up during the lame-duck session of Congress begun this week, according to both Democratic and Republican sources.
What’s more, Republican lawmakers have indicated that they would oppose a bailout of MERS if it were to be proposed in the next Congress, according to a source familiar with the matter.
Earlier today I wrote about Kyle Bass going long on Citi and Bank of America stock.
It would seem that Mr. Bass is taking the opposite side of John Paulson's trade.
Paulson, long known to have been bullish on the financial sector , seems to be paring back some of his positions – with special notice to Citi and Bank of America, according to a New York Times DealBook post :
Appaloosa Management, the $14 billion hedge fund firm run by David Tepper, sold large amounts of financial sector stocks in the third quarter of this year—a period during which he appeared on CNBC’s Squawk Box to argue that stocks were attractive whether the economy slumped or improved.
The timing of the stock sales with Tepper's bullish remarks, revealed in Appaloosa's third quarter 2010 13F with the SEC, raised some eyebrows across financial blogs and on Wall Street. Was Tepper pulling a fast one?
The influential and secretive financial blog ZeroHedge certainly thinks so :
Market watcher James Paulsen says last week's selloff is "temporary and probably a buying opportunity."
Fund managers haven't changed their investment strategies for the tech sector, in spite of the recent heavy selling.
The Fed is actively considering additional measures to address risks in the short-term wholesale funding market, Chair Janet Yellen said.